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Making a market for platinum Britannia coins


Wileyfox

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Hi all,

I've been invested in platinum for bit over a year now. One of the problems with investing in platinum is the large spread between buying and selling. I expect this is because it's a fairly niche investment and the professional dealers have to charge 20% VAT at least in the U.K.

However, there is no fundamental reason that the spread should be that large, we just need some more peer to peer market makers. At the moment I'm looking to get my trading rep to 10+ with some silver trades, once I'm there then I'll have a look into making a market for 1 oz platinum Britannias. For example, by offering to buy at spot +12%, and offering to sell at spot +22%. I have a 10 oz position with BullionVault (a vaulted service) and 6x1oz platinum Britannia coins which I bought on the forum for around spot+12%. I'd just be flipping between vaulted and coins so I wouldn't care what the actual spot price was.

Ideally there would be a thread where anyone could beat the best bid and platinum Britannia holders could also improve the offer thus making a type of orderboard for 1oz platinum Britannias and reducing the spread.

I'm still fairly new here so I'm wondering: Would something like this be useful? Has it been tried before for any other product? Can anyone see some pitfalls that would prevent it from working?

I can spot a few issues that I'm mulling over, though I'm fairly confident that maintaining a spread of 10% should be possible.

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i commend your thinking on this and I would love to see a more liquid market. 

Its a classic chicken and egg problem, squared: Spreads would naturally come in if more people were interested in platinum. The spreads are high, so they won't. Somewhat counter-intuitively, interest mostly rises following a rise in the price, which ironically negates the hit from the premium.

 

 

 

Edited by Spark268
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On 19/07/2021 at 17:47, Wileyfox said:

Hi all,

I've been invested in platinum for bit over a year now. One of the problems with investing in platinum is the large spread between buying and selling. I expect this is because it's a fairly niche investment and the professional dealers have to charge 20% VAT at least in the U.K.

However, there is no fundamental reason that the spread should be that large, we just need some more peer to peer market makers. At the moment I'm looking to get my trading rep to 10+ with some silver trades, once I'm there then I'll have a look into making a market for 1 oz platinum Britannias. For example, by offering to buy at spot +12%, and offering to sell at spot +22%. I have a 10 oz position with BullionVault (a vaulted service) and 6x1oz platinum Britannia coins which I bought on the forum for around spot+12%. I'd just be flipping between vaulted and coins so I wouldn't care what the actual spot price was.

Ideally there would be a thread where anyone could beat the best bid and platinum Britannia holders could also improve the offer thus making a type of orderboard for 1oz platinum Britannias and reducing the spread.

I'm still fairly new here so I'm wondering: Would something like this be useful? Has it been tried before for any other product? Can anyone see some pitfalls that would prevent it from working?

I can spot a few issues that I'm mulling over, though I'm fairly confident that maintaining a spread of 10% should be possible.

Can I ask you a hypothetical question?

Would you buy 100 x platinum Britannias at your indicated bid price of +12% (on a secondary market VAT special scheme), for immediate payment?

Chards

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Hi Lawrence,

Oh no.. I wouldn't have the cash!

I'm thinking this through for the odd coin here and there. I would do 2 oz at 12% and say 2oz at 11% etc then my offer to sell would come down so that my bid/ask spread remains at 10%. Other people here can then out bid me or improve the ask.. basically a peer to peer exchange.

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On 21/07/2021 at 13:19, Wileyfox said:

Hi Lawrence,

Oh no.. I wouldn't have the cash!

I'm thinking this through for the odd coin here and there. I would do 2 oz at 12% and say 2oz at 11% etc then my offer to sell would come down so that my bid/ask spread remains at 10%. Other people here can then out bid me or improve the ask.. basically a peer to peer exchange.

I did guess the main answer!¬†ūüôā

Your further scheme sounds quite sensible. 

I can envisage a few problems:

The seller needs to trust you, or vice versa.

What happens when some coins are imperfect?

You invest in 10 coins (I know you said about hedging against your BV account/stock), platinum price drops, do you make a loss?

Whether platinum prices go up or down, there is nobody who wants to buy, or wants to but can't afford any. Maybe they want a different date!

I am not knocking the idea, just "thinking out loud".

I see our companies role as a market maker. We will (almost) always quote or discuss a buying price on any coins in any quantity. Part of this is that we need to maintain sufficient liquidity to be able to pay immediately for whatever we get offered. Sometimes we buy in very little for days or a week at a time, then we get a big buy-in, and the next day there is a queue of other people wanting to sell often quite substantial "dollops" of coins. This is not unusual, these things often go in waves, almost as though they were synchronised.

A few months ago, someone brought in multiple large cartons of modern issue, mainly proof, coins, some gold, some platinum. they included 5 and 10 ounce coins, mainly Channel Islands, most were low issue limit, nearly all bought from Harrington and Byrne. From memory, the total came to almost £400K. It took us a good few days to work through them to establish their value, followed by weeks photographing them, more weeks adding them to our stock system with descriptions and VAT status. A few sold within days, we probably under-priced them, but I don't know what proportion we have now sold. I suspect it will not be high, and also that we still have too many of them left in stock in a year's time. This is not a complaint or pleas for sympathy, we remain happy we bought them, but in the few weeks either side of buying these, we also bought a few largish bullion lots, and several other modern issue parcels.

Back to platinum, about 20 years ago, a Rothschilds customer wanted to sell 50 x one ounce platinum bullion coins, maples or eagles from memory. She was pointed in our direction, and we duly bought them, without much enthusiasm. It took us months to get our investment back into cash, even offering them out as low as 1% premium.

... and of course, when the palladium price spiked a year or so ago, palladium coins and bars were coming out of the woodwork much faster than we could sell them. Our investment in them was a substantial 6 figure sum. Almost nobody wanted to buy. We did end up shifting almost all, but only after prices were about 15% down from the peak.

In both of these cases, I am sure we ended up in profit, but we had to work hard, and we certainly didn't get rich.

 

 

Chards

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interesting post!

most exchanges/trading places do offer discounts or rebates for the service of market making. On coinbase pro for cryptos, you get lower transaction fees if you are providing liquidity, as opposed to taking it.

on an unrelated note, it looks like criminals are providing liquidity to PGM market in their own way ūüėõ

https://www.zerohedge.com/commodities/why-are-thieves-stealing-so-many-catalytic-converters

Edited by Spark268
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Yes a wealth of information there for me to digest.

Quote

I can envisage a few problems:

The seller needs to trust you, or vice versa.

What happens when some coins are imperfect?

You invest in 10 coins (I know you said about hedging against your BV account/stock), platinum price drops, do you make a loss?

Whether platinum prices go up or down, there is nobody who wants to buy, or wants to but can't afford any. Maybe they want a different date!

Yes I think trust is a key issue, that's why I'd wait until I have more trading history and experience of doing bigger amounts - hopefully enjoying the process as I go. 

I'd need to see pictures of the coins before agreeing to purchase, if the coins are imperfect then I'd would look to adjust the price or refuse the trade. 

If I invest in coins then the source of the cash will essentially come from selling a portion of my vaulted platinum BV position so if the platinum price drops then I'd be sitting on a paper loss though no worse than where I would have been without buying the coins.

If no one want to buy the coins I had in my inventory then I'd just have to enjoy looking at them :) I'd only be looking to purchase Britannias though so good for the UK market and these only started to be produced in 2018 so its quite new as a coin series.

I guess the experiences that you've posted shows the differences between what a professional dealer and a hobbyist provide to the pm ecosystem and the issues they have to consider. Always quoting a price on any coin in any quantity is something that only a handful of dealers can hope to achieve, I expect that managing cashflow and making payroll becomes particularly important then too.

One of the other points that I was considering (especially before I bought my first platinum coins) is verifying that the coins are indeed genuine.. given platinum's density I've realised that if it looks good and passes the weight and measurement tests then it pretty much has to be platinum. I'd be interested to hear if anyone has ever heard/come across a convincing fake platinum coin?
 

Quote

most exchanges/trading places do offer discounts or rebates for the service of market making. On coinbase pro for cryptos, you get lower transaction fees if you are providing liquidity, as opposed to taking it.

on an unrelated note, it looks like criminals are providing liquidity to PGM market in their own way¬†ūüėõ

Yes exactly, lower spreads draw in investors, speculators and transaction revenue for the exchanges. I tried using some bots (free open-source software) to market make on a crypto platform, however to compete with professionals one has to essentially go for obsure alt-coins that have a higher spread and the profit in earning the spread is dwarfed by the effect of the price swings of the alt-coin. So I think the key to a market making as a hobby is to choose something that has a low liquidity/high spread but which one also doesn't mind holding as a long term position.

I hope that stolen platinum doesn't make it into the Royal Mint supply chain.. Also nice to see your recent sales post and a strong bid at 15% for the platinum britannias :)   

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  • 3 months later...
On 22/07/2021 at 22:51, LawrenceChard said:

Back to platinum, about 20 years ago, a Rothschilds customer wanted to sell 50 x one ounce platinum bullion coins, maples or eagles from memory. She was pointed in our direction, and we duly bought them, without much enthusiasm. It took us months to get our investment back into cash, even offering them out as low as 1% premium.

The above extract caught my attention.
I am still puzzled about the large buy / sell spread on Platinum coins.
If a dealer can trade gold, buying at 98% of spot, then selling at 5% over spot, why not with platinum ??
Anyone got a good explanation ?

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8 minutes ago, Pete said:

The above extract caught my attention.
I am still puzzled about the large buy / sell spread on Platinum coins.
If a dealer can trade gold, buying at 98% of spot, then selling at 5% over spot, why not with platinum ??
Anyone got a good explanation ?

There is a massive gap in the market

"It might make sense just to get some in case it catches on"  - Satoshi Nakamoto 2009

"Its going to Zero" - Peter Schiff 2013

"$1,000,000,000 by 2050"  - Fidelity 2024

 

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5 hours ago, Pete said:

The above extract caught my attention.
I am still puzzled about the large buy / sell spread on Platinum coins.
If a dealer can trade gold, buying at 98% of spot, then selling at 5% over spot, why not with platinum ??
Anyone got a good explanation ?

I'm guessing it is to do with volume. Dealers are likely turning over x100 more volume in gold bullion than in platinum. This leads them to price platinum as a low turnover/high margin product - a bit like with numismatics. VAT on top doesn't help either, though just means there's more scope for the peer-to-peer market to fill the gap.

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18 hours ago, Wileyfox said:

I'm guessing it is to do with volume. Dealers are likely turning over x100 more volume in gold bullion than in platinum. This leads them to price platinum as a low turnover/high margin product - a bit like with numismatics. VAT on top doesn't help either, though just means there's more scope for the peer-to-peer market to fill the gap.

I am ignoring VAT in comparing buy & sell prices.
Peer to peer pricing in gold bullion is very similar compared to the main dealers.
Platinum is a real mystery ( it wasn't always like this ) even with peer to peer.
If a dealer will buy a one ounce Pt coin for say 96% of spot I really cannot see why they need to sell at say 20% or higher over spot.
Surely their business is primarily based on flipping inventory and working on modest margins which are determined by competition.
Sitting on inventory is risky with price volatility, anything else is opportunist and speculation.

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7 minutes ago, Pete said:

I am ignoring VAT in comparing buy & sell prices.
Peer to peer pricing in gold bullion is very similar compared to the main dealers.
Platinum is a real mystery ( it wasn't always like this ) even with peer to peer.
If a dealer will buy a one ounce Pt coin for say 96% of spot I really cannot see why they need to sell at say 20% or higher over spot.
Surely their business is primarily based on flipping inventory and working on modest margins which are determined by competition.
Sitting on inventory is risky with price volatility, anything else is opportunist and speculation.

Can you point me to a bullion dealer only asking 20% over spot ie £950 per ounce?

"It might make sense just to get some in case it catches on"  - Satoshi Nakamoto 2009

"Its going to Zero" - Peter Schiff 2013

"$1,000,000,000 by 2050"  - Fidelity 2024

 

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  • 2 weeks later...
1 hour ago, GoldDiggerDave said:

I’m amazed our thieving government have not ramped gold to 20%.

Don't shout too loudly - someone in gov might think this is a great idea.
Gold is perceived as only for well-healed people, so surely the rich in society should be squeezed harder to pay even more tax to give to the poor.
I still find it strange that you can hold both silver and platinum in vaults without paying any VAT.
Okay you don't have the metal in your hands so what ?
Gold used to incur VAT and Platinum should really be treated the same way as gold I think.

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4 hours ago, Pete said:

Certainly does when you see the price of new coins from the Mint but secondhand ?
Premiums at 20% and more kill it for me when gold is less than 5%.

Same with Silver though isn't it?

"It might make sense just to get some in case it catches on"  - Satoshi Nakamoto 2009

"Its going to Zero" - Peter Schiff 2013

"$1,000,000,000 by 2050"  - Fidelity 2024

 

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2 hours ago, Pete said:

Don't shout too loudly - someone in gov might think this is a great idea.
Gold is perceived as only for well-healed people, so surely the rich in society should be squeezed harder to pay even more tax to give to the poor.
I still find it strange that you can hold both silver and platinum in vaults without paying any VAT.
Okay you don't have the metal in your hands so what ?
Gold used to incur VAT and Platinum should really be treated the same way as gold I think.

Doesn't it have to be held in an offshore vault, Personally I would go down the physical ETF route if you want to avoid premiums.

"It might make sense just to get some in case it catches on"  - Satoshi Nakamoto 2009

"Its going to Zero" - Peter Schiff 2013

"$1,000,000,000 by 2050"  - Fidelity 2024

 

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7 hours ago, Pete said:

Don't shout too loudly - someone in gov might think this is a great idea.
Gold is perceived as only for well-healed people, so surely the rich in society should be squeezed harder to pay even more tax to give to the poor.
I still find it strange that you can hold both silver and platinum in vaults without paying any VAT.
Okay you don't have the metal in your hands so what ?
Gold used to incur VAT and Platinum should really be treated the same way as gold I think.

My understanding is that you can hold silver and platinum in vaults without paying VAT thanks to the fact that you give up a substantial part of your ownership rights, such that you are effectively not treated as a real owner of the respective assets (for VAT purposes at least). As soon as you decide to exercise some of your ownership rights connected with specific tangible piece of metal, VAT kicks in.

Regarding gold and platinum, I am actually not quite sure why platinum should be treated the same way as gold as they do not have much in common, other than being expensive metals and that some platinum is also used to produce investment coins and bars. As I understand it, special VAT regime for gold stems from the fact that it used to be a means of payment, so there are perhaps better arguments along those lines for silver to be VAT exempt than platinum... It's sad for platinum stackers and I like platinum, too, but it will hardly ever be different...

On the other hand, I would not really be surprised if special VAT regime for gold will end one day.

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16 hours ago, CollectForFun said:

My understanding is that you can hold silver and platinum in vaults without paying VAT

Depends where the vault is and if its bonded. Some still charge VAT and some dont.

Royal Mint charge VAT on Digital Platinum and Silver thats held in a vault. 

 

As an aside, hardly any physical Platinum currently available at Royal Mint.

Edited by Uksilverstackers
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